Before buying a franchise, franchisees receive a Franchise Disclosure Document (FDD) for review. The FDD is required under federal and state law to enable franchisees to make informed decisions about whether to purchase the franchise. This documentation is crucial to protecting franchisees and they should seek legal representation to ensure they are well-informed before entering into an agreement.
Impact on the franchisee
Owning a franchise is a long-term relationship and it is important to work with a franchisor who is trustworthy, has a good track record, and is financially stable. In addition, franchisees must understand how their businesses may be affected by the franchisor’s requirements. The FDD provides extensive information about the franchisor, the franchise system, and the franchisee’s initial investment so franchisees know what they are getting into before buying the franchise.
Lusthaus Law provides a thorough legal review of the FDD and advises franchisees regarding legal or business concerns that may affect the success of their franchise, including:
- Potential risks with the franchisor (e.g., competing ownership interests, lawsuits, and financial problems).
- Forthcoming business changes which may substantially affect the franchisee’s payment obligations (e.g., the need to implement new computer systems, make renovations, or other modifications).
- Franchisor’s support obligations before and after operations begin (e.g., advertising and promotions).
Unlike with other types of business transactions, franchise law requires extensive disclosure by a franchisor. However, this disclosure offers little benefit to franchisees if they do not seek experienced counsel to review and explain the FDD.
If you are considering buying a franchise, consult Lusthaus Law about reviewing your FDD. Our extensive experience can help you avoid mistakes and protect your interests.